Striking a ‘Rich’ Balance Between Saving for Retirement and Their Children’s Education

“Should I borrow from my retirement savings to help pay my children’s college tuition?” It’s a question posed often to financial planners. And their response is a consistent, “No.”

There are many reasons why. The older you are, the more difficult it is to replace the money you have saved, especially in an era of layoffs and job uncertainty. And, there is no way to make up for the power of compound interest on your savings, which Albert Einstein called, “the eighth wonder of the world.”

[Related: Is Your Student Loan Debt Affecting Your Child’s Education Plans?]

Also, most people have saved little or nothing for retirement, which means they are already facing a standard of living in retirement that is lower than what they are used to.

It’s a hard decision. Parents feel a responsibility to help their kids get through college without an enormous debt load. In a T. Rowe Price survey, 53% of the parents interviewed said they would rather raid their retirement savings than have their children take out loans to pay for college. 49% said they were willing to delay retirement, if necessary, to pay their children’s tuition.

Still, that doesn’t make it the right way to do it.

Reginald and

Kim Rich, aged 57 and 55, of Bowie, Maryland, put three sons and a daughter through private schools and then college with a combination of luck, scholarships, and loans. He is a recently retired firefighter and EMT. She is a nurse, and is several years away from retirement.

Though the financial path through college was different for each of their children, Reginald and Kim never once thought about touching their retirement savings. As a result, they have in excess of $400,000 in separate 401(k) savings plans, in addition to Reginald’s pension and non-retirement savings.

“I was always told if you want to be comfortable (in retirement), do not touch it,” Reginald says. “Once we retired, we wanted to still live comfortably,” says Kim.

Their four children range in age from 22 to 36. The youngest, their only daughter, recently graduated from the University of Maryland, meaning all four children are now college graduates.

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When Reginald joined the fire department in Alexandria, Virginia, he contributed enough to his 401(k) to get the full employer match.

“A lot of the information I got came from the advisers at the fire department. They said to put away money. If you can’t put in the max, do something. That’s what got me going,” he says.

Kim’s story is similar. She worked at Kaiser, which had financial advisers talk to staff. She too listened.

The toughest time was when they were paying private school tuition for the two younger children while at the same time paying college tuition for the two older ones. At the time they were earning about $60,000 each, per year.

Their oldest child attended Bowie State University, financed with a partial scholarship and Parent PLUS loans. He graduated 10 years ago and is now a mail carrier and music teacher.

Their second son received a partial athletic scholarship to play basketball at Lee University in Tennessee, but it increased to a full scholarship for his last two years. He is now a scientist doing stem cell research.

“We could not afford it with two in college and two in private schools,” says Kim. “We had to pay the remaining out-of-pocket. And we had to do a Parent PLUS loan.”

Their third son, now 25, received a partial scholarship. The couple took out another loan, which they were able to pay off while he was still in college. And the rest they paid out-of-pocket. “We sacrificed,” says Kim. “It was hard.” He now plays professional football in the Arena Football League and is a sports trainer.

Their daughter, who recently earned a bachelor’s degree in nutrition and food science from the University of Maryland, was not awarded a scholarship. They again had to take out loans, but hope to have them paid off in three to five years, with the help of Daphne Wright, their financial adviser.

Wright, founder of Wright Financial Services in Alexandria, says you should virtually never use retirement savings to pay tuition. “You can take out a loan for college tuition, but you can’t take out a loan for retirement,” she says.

The couple said even though they took out loans as needed, they discouraged their children from taking out student loans.

“I had to work, work, work,” says Reginald. “I worked part-time jobs and created businesses. I did a little bit of everything. I had a partner who was in the computer supply business. I did things to generate cash. I worked part time doing deliveries for a graphics company. The fire department offered a lot of overtime. I took advantage of that.”

Exotic vacations, they just couldn’t do. “We would have to drive 17 or 18 hours to Florida,” says Reginald. “Back then we were young and we had a timeshare. That timeshare took us everywhere. Then we’d have mini-vacations. I tried to make sure we were able to vacation once a season.”

Kim says if they could do it again, “I wish we would have done a little better saving for education. My advice is to do that along with retirement.”

HOW THEY DID IT

- Start early. Reginald and Kim began saving for retirement early and stayed on track. Each contributed enough to their respective 401(k)s to get the full employer match.

– Seek advice. Both took advantage of employer-sponsored financial planners. They listened to the advice and did not waver from their quest to retire in comfort.

– A little luck never hurts. When it came time for the children to go to college, Reginald and Kim were lucky enough that the first three were awarded at least partial scholarships.

- Determination and sacrifice are key. They were determined that their children not bear the burden of student loans. They were just as determined to not touch their retirement savings. They took out loans themselves and paid the rest out-of-pocket. That meant sacrifice for a family of six, but they are now looking forward to their goal of a “comfortable retirement.”